An Economic Analysis of Privatization of Indian Railways

 

Wamik Kalam1, Govind Singh1, Priyesh Chaurasiya2

1Research Scholer, Department of Economics University of Allahabad.

2Assistant Professor, Government College Ramanujnagar.

*Corresponding Author E-mail: wamikkalam007@gmail.com, Govindthakursingh11@gmail.com, chursiyapriyesh@gmail.com

 

ABSTRACT:

Importance of Work –The main purpose of this paper is to understand the history of Indian railways and what would be the possible advantages and disadvantages from these privatization programs and also to highlight the recent initiatives of Indian government to provide better facilities with the support of private investors without leaving its social objectives. Abastract-With the introduction of liberalization and privatization market expanded by manifold but due to many social objectives Indian railway was deprived for many decades from this privatization programmer. In India Indian railways are credited for serving the largest democracy in the world. Recently for the trial purpose Indian railway catering and tourism corporation started Tejas express which was partially privatized. According to Arvind subhramanyan if you invest one rupees in Indian railway it will generate five rupees in the economy. There is another proposal of a National rail plan for India it is a 30 year plan from 2021 to 2051, which envisages investments of 38.5 lakh crore for the larger need of fund government open up foreign direct investment through automatic route which means buyer or investor does not require prior approval from the reserve bank of India.

 

KEYWORDS: Public Private partnership, Railways, Foreign direct investment, public good, Privatization.

 

 


INTRODUCTION:

Presently, Indian railways operates an extensive fleet of about 60,000 coaches ,2.5 lakh wagons and locomotives to serve the transport and locomotives to serve the of transportation services in the country and is highly referred as the life line of the nation. The first railways on Indian subcontinent ran over a stretch out 21 miles from Bombay to Thane. The first passenger train steamed out of Howrah station destined for Hooghly, A distance of 24 miles on 15 august 1854. In south India the first line was opened on 1st July 1856 by the madras railway company it ran between vyasarpadi jeeva nilayam and walajah road a distance of 63 miles of lines was laid from Allahabad to Kanpur on 3rd march 1859.

 

Indian railways the premier transport organization of the country is the largest rail network in Asia network in Asia and the world second largest under one management. Despite being its vital role railways in recent years, Confronted with its dwindling finances has been mulling ways of generating revenue through different streams. The railway ministry on July 1 2020 began the formal process of allowing private trains on 109 routes a process that aims to, For the first time open up one of most prominent enterprises. Indian railways plan to introduce private trains on its network in phases with the first dozen due to start running in 2023-24 financial years and all 151 by 2027.The Indian railways is also considering having private companies operates 90 train stations and exploring several options including looking at the arrangement at Indians privately run airports to determine how best to set up security infrastructure at these.

 

THE OBJECTIVES OF THIS RESEARCH ARE –

·         To study the growth of FDI in Indian railways

·         To examine the process of privatization along with its social objectives.

·         To provide suggestion regarding better mobilization of resources, better sanitation facilities and latest technology enhancement etc.

 

RESEARCH DESIGN AND DATA COLLECTION:

For this study the data is collected from the secondary sources. The secondary sources are reports of Reserve bank of India, publications the make in India and ministry of railways, some information are from the different financial websites and various newspaper and journals, articles etc.

 

THEORETICAL FRAMEWORK:

Foreign direct investment in railways –Since very long time Indian railways is the backbone of long-distance passenger transport in India, As on 31 December 2021 total route length was 1,26,511 km which is the fourth largest railway network in the world by size. Government is perusing modernization and strengthening of railway network and development of rail related industries through infusion of foreign equity and technology leading to growth in manufacturing and enhancing competiveness. With this view government has allowed 100 percent FDI inflows in railways related components stood at US$1.23 billion from April 2000 to 2021. ome of the important areas opened for FDI in railways are included below.

1.       Suburban corridor projects though public private partnership.

2.       High speed train projects

3.       Dedicated freight lines

4.       Rolling stock including train cost sets and locomotives/coaches manufacturing and maintenance facilities.

5.       Railway electrification

6.       Signaling system

7.       Freight terminals

8.       Passenger terminals

9.       Industrial parks pertaining to railways line

10.    Mass rapid transport system.

 

The main foreign investor for railways sector are EMD(USA), Bomburdier transportation (Canada), GE (USA), Siemens (Germany), Alston (France), Ansaldo Transportation system India (Australia), Titagarh wagon ltd (Mauritius), CAF India private Ltd (Spain).

 

REVIEW OF LITERATURE:

Nair.k (2014)’’Services provided by Indian railways is there a need for privatization?’’In this research paper emphasized over required services provided by Indian railways. test ANOVA was used to find out the significance of associations between the demographics and variables selected. The paper concluded that the Indian railways have a significant scope to improve the quality of services provided and the respondents’ were neither highly disappointed by the services provided. There were mixed response towards the privatization of railways. Sajjad Ahmad Parry (2017) “FDI in Indian railways analysis pre and post make in India initiative’’ The paper provides an overview of the Indian railways and the FDI inflows in railway sector before and after make in India program. Paper suggested that for serving as the lifeline of nation and making a contribution to the country growth, The organization needs to become operationally and financially sound. Rajesker T and MP Asha (2020) ‘’Privatizaton of Indian Railways Prospects and Consequences ‘’The study found that efficiency quality of services, lesser accidents, fewer political intervention, shareholders value and technological innovations as the perspectives measure while adopting privatization concepts further the study reported that limited coverage, higher fares, accountability and on economy as the consequence measure while adopting privatization policy with proper conclusion. Gupta, N (2002) studied the effect of partial privatization and firms performance. The study stated that most of the privatization programs begin with partial manner so that it will not affect the firm also found that partial privatization has positive and highly significant impact on firm sales. Kekeri, S and John N. (2004)- Found in his study that the privatization has been a resounding success in improving firm performance. The privatization program must be based on its needs. Sai Krishna M “Study on privatization of Indian railways” Has highlighted the cross study of Britain railways and its impact after privatization paper discussed that after privatization paper discussed that after privatization British railways efficiency and performance is more or less the same another problem of privatization of railways is an giant organization and cannot be handle by a single organization, and cannot be handled by a single organization, And after privatization there will be price hike and railway is considered as public good so welfare is another concern for the railway.

 

Important Studies Regarding Privatization in Different Countries.

A study of privatization in Japan-The boom in the mid 1980’s can be seen as the third wave of privatization in Japan here are some factors as the background of recent privatization.

1.       Socioeconomic changes – Rapid technological analysis in the field of high-tech environment urges for a new way of technological enhancement.

2.       Financial crisis and raising financial cost of public corporations –Between 1974 and 1979 Japan national deficit rose from 1.6 to6.1 percent of GDP so without tax reforms and other earnings it was very hard for the government to run the basic necessities of its people.

3.       Immense foreign pressure –The prevailing foreign pressure was also there which cannot be neglected because due to which Japan was forced to privatize so the market can access Japan very easily.

4.       Boom in capital market – In the mid of 1980’s Japanese capital market developed and sales of public assets promised to be highly profitable to the state.

 

Opinion For Privatization:

In Japan there were no academic groups or research institution which influenced the policy formation like in USA, Britain etc. The main reasons advocate about the privatization in Japan are principal agent problems, government failure, comparison of performance between the private corporations and public corporations.

 

Opinions Agaist Privatization:

If the privatization happens there will be regional groups as private players do not take interest in rural economy. The influence on labor problems, privatization would bring about the mass unemployment and worsen the conditions of labor division into regional companies would not only make it impossible to supply a universal service.

 

A study on Dutch railways privatization –There were cases that it is difficult for the government to develop a realistic understanding of market conditions and the motives of the party. But here government fails to recognize that private parties will participate only if there is reasonable expectations of profits and if the risks are manageable.

 

A study of IRAN-The beginning of privatization plans in Iran goes back to   the implementation of the sample and the policies of economic adjustments of international monetary fund and world bank in the restoring time. During the restoration and by implementation economic adjustments policies and privatization imposed by international organization to get rid of crisis and achieve adequate growth for a successful privatization. Government capacity to invest must be equals to the private partners otherwise efficiency cannot be achieved because of low amount of capital.

 

Advantages of Privatization of Indian Railway:

1.     Efficient services –As this is proven fact that the private players are very much concerned with the effectiveness of services as catering and sanitation parts can be handled very efficiently by the private players.

2.     Maximization in revenue –When corporate entered into the market then there will be world class to lower middle class facilities for each group of people in returns private players will gain a large amount of revenue as they are doing in aviation sector.

3.     Prices will reduce due to oligopolistic nature of railways –As private players entered there will be immense competition among the corporate so they will decrease the price to gather a large amount of profit.

4.     For the improvement in infrastructure –National institute for transforming India strategy for new India @75 envisages many targets in railways infrastructure such as increasing the speed of infrastructure creation from the present 7km/ day to 19 km /day 100 electrification of broad gage track by 2022-23

5.     Infusion Of technology – The privatization will also help in accommodating the latest technology in railways coaches’ safety and travelling experience.

 

Disadvantages of Privatization in India:

1.     Rural areas might be deprived- Some low populated areas as Himalayan range and some other parts of northern Indian might be deprived if government dwindle its role from railways infrastructure.

2.     Increase in fare – In socialist country like Indian railway are treated as a social good which is used for the purpose of social welfare of the public so increased fare would also defeat the purposes of Indian railway which is meant to serve the entire population irrespective of its income.

3.     Issue of cross subsidization – As of now Indian railways govern by ministry of railway impose a high price on passenger and low price for freight purpose so it would be hard for private players to conquer both the objectives and price hike will also increase inflationary effects.

 

Reasons For Railways Privatization:

1.     Consecutive losses

2.      Increasing the state subsidies to keep on railways objectives

3.     Low productivity of capital loss

Deboray committee – The railways board had constituted a committee for mobilization of resources for major projects and restructuring of railways ministry and railways board. The committee was constituted on September 22, 2014 prepare a blueprint for reforming Indian railways.

 

1.     Failure of private participation – Regulation, function and operations are all vested within the same organization that is ministry of railways. The committee recommended all there functions must be separated for the proper functioning of railways.

2.     Need for independent regulator –In order to create a level playing for private players in the sector the committee recommendations setting up an independent regulation the railways regulatory authority. The railway will be statuary authority, with an independent budget and independent of ministry. An independent regulator for railways is also necessary because of the technical and specified nature of the sector.

3.     Financing issues- Financing of railways is a challenge because

·         The efficiency and improvement do not result in increasing revenue.

·         Investment is in projects that do not have tariff and hence do not generate revenue.

·         The unbalanced mix of passengers and freight tariff does not generate revenue.

 

So if railways are financed through external sector there would be sufficient amount as compare to only in external sectors.

4.     Restructuring of zones- At present there are about 17 zones and further 73 divisions. The present zones have developed historically and a form of specific strategy.

5.     Focus on core activities – The committee had observed that railways also engages in peripheral activities such as police, hospitals, school and other important social services and these sector will face immense competition in near future. To enable themselves to compete efficiently, The need to reduce the cost on these non core activities that are non remunerative in nature, and instead improve the efficiency of running trains by greater resource allocation to this function

6.     Accounting reform – The accounting system does not provide details of cost of various activities and services such as introduction of new trains and scheduling of stops. It neither tracks assets nor assesses liability consequently it become difficult to compute the cost and benefits of any projects or activities.

7.     Streamline recruitment and HR Process – The report present system of recruitment into Indian railways through various channel need to be streamlined it recommended that present eight organized group’A’ services in Indian railways can be categorized in two bigger groupings viz technical and Non-technical services.

8.     Decentralization- Decentralization should happen at bottom level duties to ensure proper decentralization there is a need to delegate enhanced powers, mainly related to tenders connected with works, stores procurement services even revenue earning commercials tenders to the DRM’s.

9.     Merging of railway budget with general budget- The committee recommended that a separate railway budget should be phased out progressively and merged with the general budget and eventually also integrate the ministry of railway with ministry of transport.

 

National action plan for railways-Indian railways has formulated a ‘’National action plan ‘’ to address its capacity deficiencies by 2030 to increase average participation in the freight ecosystem the objective of this scheme is to increase the railway network capacity by 2030.Which will be able to reduce the carbon emission and increase the average freight to 45 from the current 27 percent by 2030.

Recent developments and investment in India –Here are some the major investment and developments in Indian railways sector.

·         In November 2021, Indian railways announced that 102- semi speed Vande Bharat express are expected to commence operations by 2024, With at least 10 new trains scheduled to launch by august 2022 that will connect 40 cities.

·         Since the launch of “First Kisan Rail’’ Services on august 7,2020 the Indian railways have operated a total of 1040 Kisan rail services by transporting 3.38 lakh tones of consignment across 72 routes in the country until July 30, 2021.

·         In July 2021, the ministry of railways receives bids from the private and public sectors to operate 29 pairs of train with about 40 modern routes, entailing an investment of 7,200 crore

·         As of may 5, 2021 the government of India and European investment bank signed a finance contract for the second tranche of US 182.30 million for the Pune metro rail project.

·         The government has announced two key initiates for seeking private investment running private operations across the country. According to Indian railways these projects have potential of bringing an investment of over US$7.5 billion in the next five year.

 

CONCLUDING REMARKS:

Limited train services for most of the year with no subsidies and concessions and severely tightening of expenses led to the railways better its operating ratio to 97.45 percent in the financial year 2020-21 from 98.36 percent the previous fiscal. But this amount is not highest enough to encourage the private investors. The recent invitation for the private to submits qualification bids for 151 trains would be in the assessment of the railways board only for a fraction of total trains operations 5 percent of the 2800 mail and express services operated by Indian railways. The overall objective however is to introduce a new train travel experience for passengers who are used to travelling by aircraft and air condition buses.

 

The key piece in the scheme is the independent regulator recommended by expert committee rail development authority body, advising government on among other thing promoting competition, efficiency and economy and protecting consumers interest. Private rail operations can thus be seen as a governmental led pilot plan, not a full program for unbundling of the monolithic Indian railways. One of the major concerns about privatization is high fares which will eventually harm the objectives of a social good.

 

REFERENCES:

1.      Sajjad Ahmad Parry (2017)-“Should Indian Railways Be Privatized”Ijar Article DOI:10.21474/IJAR01/2825.

2.      SAI Krishna M (2018) “Study on privatization of Indian railways’’ International journal of pure and applied mathematics volume120 No.5 2018, 3407-3412

3.      M Safeer Pasha, “Privatization of Indian railways prospects and consequences, 2020.

4.      Kaur Manpreet (2014) Impact of foreign direct investment in India’’ IJAR May 2014.

5.      Ernest ten Heuvelhof and Helen Stout (2000), “Sustainable utilities New Opportunities for sustainability through Liberalization and privatization’’, UNEP industry and environment Vol. 23, No. 1-2, p. 60.

6.      Ministry of railway (Government of India)

7.      National institute for transforming India

 

 

 

Received on 22.03.2022         Modified on 13.04.2022

Accepted on 26.04.2022      ©AandV Publications All right reserved

Res.  J. Humanities and Social Sciences. 2022;13(2):117-121.

DOI: 10.52711/2321-5828.2022.00020